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Abstract
This paper examines the security relationship between the US and Europe, focusing on potential spillin effects of US military expenditures on European demand for military expenditures during the early twenty-first century. The goal is to test whether or not European states view US expenditures as a complement or as a substitute to their own military expenditures. Past work in this area has found mixed results concerning the effect of US military expenditures, but focus strictly on the spillins within a formal alliance, specifically NATO, and use a time series dominated by Cold War dynamics. This study differentiates itself by accounting for both US total military expenditures and its regional expenditures through incorporation of US military base and personnel deployments across Europe. Additionally, this paper uses government revenue in its estimation to mitigate potential endogeneity. Findings using Arellano–Bond dynamic panel analysis suggest that there is a strong probability of substitution among European states.
Keywords:
Notes
No potential conflict of interest was reported by the author.
1 For the sake of brevity, all mentions of NATO past this point will be in reference to its European members exclusively.
2 Nikolaidou (Citation2008) is cited on contrary points because they do individual time series analyses for various European countries. In some cases Nikolaidou found cooperation and in other cases substitution.
3 The positive security externality provided by allied military expenditures.
4 An Andrews Plot puts data through a finite Fourier Series that preserves the mean and variance. For more information see Garcıa-Osorio and Fyfe (Citation2005).
5 Iceland was excluded due to data availability issues. However, Iceland’s military expenditures are tiny relative to the rest of NATO, averaging only $21 million over the years available, so there should be no loss in statistical validity.
6 The Box–Cox test suggested a transformation of 0.047 and 0.136 on the dependent and independent variables respectively. Since a transformation with these values would lack clear interpretability, the double-log is applied.
7 For example, the US African Command headquarters is actually in Stuttgart, Germany.
8 Correlation coefficients of 0.995 and 0.957 respectively.